Reversing the Trend: The Recent Expansion of the Reverse Mortgage Market

Purpose The year 2020 heralds a landmark in Malaysia’s demographic and economic landscape, as the country is expected to become an ageing country, as well as aspiring of becoming a high-income country. The elderly persons are, however, reported to be vulnerable to the risk of financial insecurity in old age, which if not addressed can affect the country’s effort of accomplishing the Vision 2020 goal of becoming a high-income nation. Therefore, this paper aims to explore the factors that are capable of affecting the development of reverse mortgage market in Malaysia from the perspective of the financial service professionals. Design/methodology/approach The study is a qualitative design that involves the use of semi-structured questionnaire as data collection strategy. A total number of nine participants were selected for the interview using critical case sample scheme based on purposive sampling strategy. Findings The findings reveal that various economic, socio-demographic, behavioural and political/institutional factors would impose varying degrees of influence on reverse mortgage market in Malaysia. Originality/value The study is expected to spur discussion among stakeholders on the practicability of using reverse mortgage as alternative source of old-age financing in Malaysia.

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Economic Mechanism and Cash Flows Modeling for Reverse Mortgage

Finance Theory and Practice ◽

10.26794/2587-5671-2018-22-6-106-120 ◽

2018 ◽

Vol 22 (6) ◽

pp. 106-120

Author(s):

E. V. Kuz’mina ◽

A. A. Yanin

Keyword(s):

Real Estate ◽

Senior Citizens ◽

Market Equilibrium ◽

Cash Flows ◽

Mortgage Lending ◽

Mortgage Market ◽

Reverse Mortgage ◽

Economic Mechanism ◽

Expected Benefits ◽

The Uk

The research is devoted to the economic mechanism of reverse mortgage — a credit product aimed at improving the standard of living of senior citizens, owners of real estate. The idea of the reverse mortgage has been given, as well as the mechanisms of use of real estate owned by senior citizens in order to provide them with additional income. The examples of reverse mortgage in the uS, the uK, Spain and Australia have been given. The authors have also described the methods of reverse mortgage lending in Russia. Based on the analysis of international experience, the economic expediency of investing in this credit tool has been assessed. Considering consumer demand factor, it is possible to calculate the equilibrium rate and, therefore, to find the coordinates of the market equilibrium point. The authors have developed a mathematical model of reverse mortgage for the case of lifetime annuity payments. This model allows to calculate the expected benefits of borrowers and lenders. There have been done (and implemented) two notes that significantly distinguish reverse mortgage modeling from other loan products: 1) a lifetime reverse mortgage does not have a fixed expiration date; 2) when taking a loan of this type, borrowers consider not only consumption, but also accumulation of inheritance. The model allows to calculate the position of break-even points and market equilibrium (relative to the interest rate). This will help economically interested agents to assess the potential of the reverse mortgage market in Russia.

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Reversing the Trend : The Recent Expansion of the Reverse Mortgage Market

Finance and Economics Discussion Series ◽

10.17016/feds.2009.42 ◽

2009 ◽

Vol 2009 (42) ◽

pp. 1-41 ◽

Cited By ~ 1

Author(s):

Hui Shan ◽

Keyword(s):

Mortgage Market ◽

Reverse Mortgage

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A Numerical Analysis to Study Whether the Early Termination of Reverse Mortgages is Rational

Sustainability ◽

10.3390/su11236820 ◽

2019 ◽

Vol 11 (23) ◽

pp. 6820

Author(s):

Hyung-Suk Choi

Keyword(s):

Growth Rate ◽

Numerical Solutions ◽

House Price ◽

Developed Countries ◽

Cash Flows ◽

Mortgage Market ◽

Early Termination ◽

Pricing Model ◽

Reverse Mortgage ◽

Mortality Improvement

A reverse mortgage supports the aging society more sustainably by providing stable cash flows to elderly retirees. Although the reverse mortgage market has successfully grown in many developed countries, we have observed significantly increased early terminations due to the recent housing market boom in Korea. In this study, we provide the numerical solutions for the monthly payment from the actuarial pricing model of the reverse mortgage, reflecting the house price growth and mortality improvement to examine whether the early-termination-and-repurchase strategy is profitable. Findings suggest that in order for the strategy to be profitable, the realized growth rate of the house price should be significantly greater than the expected growth rate in the actuarial pricing model. Furthermore, for the older borrower, the greater growth rate of the house price is required for the strategy to be profitable.

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The Covid-19 Effect on Security Mortgage Valuation

Journal of Statistics Advances in Theory and Applications ◽

10.18642/jsata_7100122193 ◽

2021 ◽

Vol 25 (1) ◽

pp. 13-26

Author(s):

Giovanna Di Lorenzo ◽

◽

Massimiliano Politano ◽

Keyword(s):

Interest Rates ◽

House Prices ◽

Gompertz Model ◽

Mortgage Market ◽

Elderly Persons ◽

Home Equity ◽

Reverse Mortgage ◽

Mortgage Loans ◽

Alternative Source ◽

Cir Process

The reverse mortgage market has been expanding rapidly in developed economies in recent years. Reverse mortgages provide an alternative source of funding for retirement income and health care costs. We often hear the phrase “house rich and cash poor” to refer the increasing number of elderly persons who hold a substantial proportion of their assets in home equity. Reverse mortgage contracts involve a range of risks from the insurer’s perspective. When the outstanding balance exceeds the housing value before the loan is settled, the insurer suffers an exposure to crossover risk induced by three risk factors: interest rates, house prices, and mortality rates. In this context, Covid-19 has occurred and the insurer is faced with this additional source of risk. We analyse the combined impact of these risks on the pricing and the risk profile of reverse mortgage loans. We consider a CIR process for the evolution of the interest rate, a Black & Scholes model for the dynamics of house prices and the Gompertz model for the trend in mortality Our results show that the decrease in the mortality curve due to Covid exposes the insurer to higher risks once the shock is reabsorbed. The risk is higher the higher the age of entry. Only a significant reduction of the shock adjustment coefficient will return the situation to normality.

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